TOKYO • Japan's economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful boost from private consumption.
Positive data issued yesterday should offer some relief to Bank of Japan (BOJ) policymakers, who hope the economy is now gathering enough momentum to drive up inflation that remains stubbornly below their 2 per cent target.
Driven by robust exports and firming domestic consumption, Japan's economy expanded an annualised 2.2 per cent in January to March, exceeding a median market forecast for a 1.7 per cent rise to post the fastest growth rate since the same period last year, Cabinet Office data showed.
It marked the fifth straight quarter of expansion, the longest growth run since a six-quarter streak through 2006, when the BOJ was exiting from its previous quantitative easing programme on signs of strength in the economy.
"The economy is enjoying comfortable growth driven by both domestic and external demand," said chief economist Kyohei Morita at Credit Agricole. "Consumer spending remains relatively soft and it has room to improve. But the economy passed the grade both in terms of the pace of growth and the quality of the expansion."
Japan's economic growth in January to March outpaced an annualised 1.8 per cent expansion in the euro zone and a 0.7 per cent increase in the United States.
Japan's economy has shown signs of life, with exports and factory output benefiting from a pickup in overseas demand. But consumer prices are barely rising as firms remain wary of increasing wages, keeping the BOJ under pressure to maintain its massive stimulus despite improvements in the economy.
Nominal gross domestic product, or GDP at current market prices, fell 0.1 per cent in the first quarter to mark the first contraction in five quarters, as relatively weak demand prevented many firms from passing on rising import costs to households, underscoring the challenges of eradicating Japan's sticky deflationary mindset.
Private consumption, which accounts for roughly 60 per cent of GDP, rose 0.4 per cent in the first quarter on solid demand for smartphones and clothing, posting its fifth straight quarter of increases.
But wage earners' total remuneration fell 0.2 per cent in nominal terms from the previous quarter, a sign that firms stay reluctant to share much profits with staff.
"The Japanese economy probably won't grow dramatically, but it's not about to shrink either. The global economy is solid and there aren't many domestic downside risks," said senior economist Norio Miyagawa at Mizuho securities. "I think the economic recovery will eventually push up wages and prices, but the pace will be slow."